miqie said: I don't mind paying my fare share of taxes, but the gov't already has enough income coming in. They just don't know how to spend it efficiently. They will just waste this tax increase, also. I think this will ahve a negative effect on the economy because people will ahve less to spend.Unless you're in the top 1%, you're not paying your fair share.

RailroadTrack

Enthusiastic Member

posted: Jan. 13, 2013 @ 4:23p

greling said: It will affect me ZERO because I am EXEMPT. I am also exempt from FICA Social Security taxes. THANK GOD!

Church pastor?

PMonkeyDishwasher

Senior Member - 3K

posted: Jan. 13, 2013 @ 4:32p

If you'd been following any of the advice you find around FWF, the 2% payroll tax "increase" should have near-zero impact on your financial habits.

PrincipalMember

Senior Member - 1K

posted: Jan. 13, 2013 @ 5:01p

PMonkeyDishwasher said: If you'd been following any of the advice you find around FWF, the 2% payroll tax "increase" should have near-zero impact on your financial habits.

And I don't think it is just about following the FWF advice. It is also about the commonsense approach to managing your finances. When somebody says: "The will cut xxx because of the taxes going back to normal", they should have been doing that in the first place. Not sure why the taxes are changing anything.

For people who are living paycheck to paycheck with paycheck balancing their expenses, those are the folks that need to make real decisions around how to manage their budget by cutting expenses. And if they have been doing the right things until now, then finding things to cut would be pretty hard. And it might be better to instead pick up a part time job or something.

FriendlyPeon

Tired Member

posted: Jan. 13, 2013 @ 5:04p

I will light my cigars with $50s instead of $100s this year.

tajar96

Addicted Member

posted: Jan. 13, 2013 @ 5:45p

FriendlyPeon said: I will light my cigars with $50s instead of $100s this year.

If you are that Keen on burning it, I will take it off your hands.

dpid

Ancient Member

posted: Jan. 13, 2013 @ 10:51p

lonestarguy said: When the payroll tax was cut 2 years ago I upped my 401K contribution by 2% so it had no effect on my the last two years except to build up my retirement. I may end up reducing my contribution later, but as OP said, I am really trying to cut back to save up a better emergency fund and pay off the house this year. Last year I put 50% of my income into paying off my HEL from 39K to 13K, 20% of my income into my 401K and several grand more to build up a 6 month emergency fund and buy some more stocks and bonds. I try to keep living expenses at under 25% of my income. My worry is they will penalize savers by means testing social security even more in the future -- so you are damned if you prepare and rewarded if you are irresponsible.

Dang, I should've upped my contribution to my Roth 401k when we got the holiday! Didn't even think about it :/

greling

Thrifty Member

posted: Jan. 13, 2013 @ 11:11p

RailroadTrack said: greling said: It will affect me ZERO because I am EXEMPT. I am also exempt from FICA Social Security taxes. THANK GOD!

Church pastor?

No, but that's a good one. lol

clemente21

Senior Member

posted: Jan. 14, 2013 @ 11:59a

The rollbacks will certainly be annoying, but last January I had to deal with Illinois' state income tax increase and I managed to survive. It'll be annoying for a couple of months until my raise kicks in, and then I'll be back to the same level I've been at for the last two years.

No impact to B, but H might seen a drop in frequency or quality of service.

Shandril

Senior Member - 2K

posted: Jan. 14, 2013 @ 12:22p

We just saved more during the 1.5% tax break so it'll only be reverting to that previous level of savings. And with our last kid finally getting off child care and going to school in August, we'll actually have more to spend. So no real impact on our spending at all.

MilleniumBuc

Senior Member - 1K

posted: Jan. 14, 2013 @ 12:25p

Same as others. 401k had gone to 5% with the tax break 2 years ago, so just rolled it 1% back to 4%, and cut out on eating out (for money and health reasons). Although I liked how the changes affected the H&RR block update on Jan. 10. It went from 1k refund with the posibility of 3k in AMT to almost a 4k refund. Nice 7k swing in there.

Vertebratelife

New Member

posted: Jan. 14, 2013 @ 12:28p

My family gets paid at the end of the month (Fed workers). Since we have 5 wage earners in our house, I think the impact will be minimal. We already live very frugal but I suppose we could take the prius instead of the camry hybrid on road trips.

harruin

Senior Member

posted: Jan. 14, 2013 @ 12:40p

BostonOne said: miqie said: I don't mind paying my fare share of taxes, but the gov't already has enough income coming in. They just don't know how to spend it efficiently. They will just waste this tax increase, also. I think this will ahve a negative effect on the economy because people will ahve less to spend.Unless you're in the top 1%, you're not paying your fair share.Could you give me a breakdown how much more the common man benefits over the rich from the government?

gringopapo

New Member

posted: Jan. 14, 2013 @ 1:18p

I wonder how many people have calculated their actual total tax rate. People just assume the governments taking away all their money and usually throw out some large percentage that is equivalent to their perceived excision.

For kicks and giggles, in my budget I try to estimate my total tax burden including income, ss, medicare, house, sales, gas, etc. It's no easy task, and I'm sure I'm missing some taxes but I think I've hit all the major contributors.

So my actual total tax rate is about 20%. Of course this is a huge YMMV depening on your dependents, itemized deductions, etc. but I think it may be useful when talking about taxes to place a quantitative number on it - at least individually. And then take that number and decide if its too much (or too little).

Edit: removed quote. This is a general comment not specific to any one poster.

geo123

Happy Member

posted: Jan. 14, 2013 @ 1:40p

harruin said: BostonOne said: miqie said: I don't mind paying my fare share of taxes, but the gov't already has enough income coming in. They just don't know how to spend it efficiently. They will just waste this tax increase, also. I think this will ahve a negative effect on the economy because people will ahve less to spend.Unless you're in the top 1%, you're not paying your fair share.Could you give me a breakdown how much more the common man benefits over the rich from the government?He didn't say that the "common man benefits over the rich from the government." He said that "Unless you're in the top 1%, you're not paying your fair share," by which I think he meant that most people (I don't think that it's quite as high as 99%, but it does seem to be in the 97%-98% range) receive more in federal benefits than they pay out in federal income taxes.

According to the numbers that I am seeing, the latest figures for federal pet capita spending are around $11,500/year for every man, woman and child, which translates into $46,000/year in federal spending for a family of four. Hence, I think that it is safe to say that the vast majority of the population pays substantially less than $46,000/year in federal income taxes for a family of four.

P.S.By the way, from what I can see, once you factor in spending from state and local governments, the per capita spending figure is somewhere in the $17,400 to $20,000 range, so a family of four would need to pay $69,600 to $80,000 per year in taxes (federal, state and local) just to cover what the government averages in spending per person. The often cited fact is that the US spends more per person than Portugal, Italy, Greece or Spain.

Hmmm... well, no, that's income tax - and its a start - but not all taxes. The table does demonstrate my point that the numbers aren't near the emotionally agitated high numbers (ie 50%) and have been trending down.

Veeekay

Senior Member

posted: Jan. 14, 2013 @ 3:52p

I am going to slack off an additional 9.6 min every day, to make up for the lost pay for my $50K salary.

dpid

Ancient Member

posted: Jan. 14, 2013 @ 4:02p

Veeekay said: I am going to slack off an additional 9.6 min every day, to make up for the lost pay for my $50K salary.

Spending those extra 9.6 min on FWF?

geo123

Happy Member

posted: Jan. 14, 2013 @ 4:14p

gringopapo said: The table does demonstrate my point that the numbers aren't near the emotionally agitated high numbers (ie 50%) and have been trending down.I don't understand your point. To the extent that there has been a discussion here about "high numbers," the posters have made it very clear that they were discussing marginal taxes, not average taxes.

Both are useful datapoints but they measure different things. Your average tax burden calculations are useful when you are trying to determine your overall tax burden, so that, for instance, you can track the overall relationship of taxes to income, run a comparison calculation, etc... Your marginal tax burden is useful when you are trying to determine whether, for instance, it makes sense to invest additional hours in order to get a bonus, as it will be your marginal tax burden that will determine your net after-tax result once you receive the aforementioned bonus.

Crazytree

Senior Member - 10K

posted: Jan. 14, 2013 @ 5:04p

Are you also going to adjust your spending every year based on projected inflation figures and the rising price of wheat, corn, and natural gas?

NoMoneyInMyWallet

Tired Member

posted: Jan. 14, 2013 @ 5:29p

I cut back on spending years ago ... before it was the in thing.

No mortgage, no car payment, basic cable, prepaid (PAYG) cell and home phone.

Have maxed out 401(k)and Roth IRA (including catch-up contributions) for years.

PrincipalMember

Senior Member - 1K

posted: Jan. 15, 2013 @ 2:59a

NoMoneyInMyWallet said: I cut back on spending years ago ... before it was the in thing.

No mortgage, no car payment, basic cable, prepaid (PAYG) cell and home phone.

Have maxed out 401(k)and Roth IRA (including catch-up contributions) for years.

You didn't list "maxed out HSA" .

Mortgage is not spending. Same can be true for car payments depending on the interest rate. I can pay over my mortgage multiple times over but I continue to have it at a ridiculous 3.25% while I am using the money to make 5% tax free returns from muni-bonds. Same thing for car loans - if you are getting an interest free or very low interest loan, take it. One thing that is slightly dicey for car loans is that the interest that you pay is not tax deductible while your interest/div/cap gains are - so you have to watch the rate differential more carefully.

I find that the conventional wisdom about paying principal early will save you "so much" in interest is all hog wash. While the numbers look right when looked in isolation, they completely ignore the other opportunities that you can take advantage of with the capital. Now, if all you would do is put in the CD, then paying it off early is the better deal.

geo123

Happy Member

posted: Jan. 15, 2013 @ 6:24a

PrincipalMember said: Mortgage is not spending. Same can be true for car payments depending on the interest rate. I can pay over my mortgage multiple times over but I continue to have it at a ridiculous 3.25% while I am using the money to make 5% tax free returns from muni-bonds.I very much agree with the sentiment, but as far as your specific point goes, at this time you can't purchase an investment grade muni bond with a 5% coupon rate at par. You have to pay a premium for it, which means that your efffective yield is going to be in the 3's.

BostonOne

Senior Member - 2K

posted: Jan. 15, 2013 @ 6:40a

geo123 said: harruin said: BostonOne said: miqie said: I don't mind paying my fare share of taxes, but the gov't already has enough income coming in. They just don't know how to spend it efficiently. They will just waste this tax increase, also. I think this will ahve a negative effect on the economy because people will ahve less to spend.Unless you're in the top 1%, you're not paying your fair share.Could you give me a breakdown how much more the common man benefits over the rich from the government?He didn't say that the "common man benefits over the rich from the government." He said that "Unless you're in the top 1%, you're not paying your fair share," by which I think he meant that most people (I don't think that it's quite as high as 99%, but it does seem to be in the 97%-98% range) receive more in federal benefits than they pay out in federal income taxes.

According to the numbers that I am seeing, the latest figures for federal pet capita spending are around $11,500/year for every man, woman and child, which translates into $46,000/year in federal spending for a family of four. Hence, I think that it is safe to say that the vast majority of the population pays substantially less than $46,000/year in federal income taxes for a family of four.

P.S.By the way, from what I can see, once you factor in spending from state and local governments, the per capita spending figure is somewhere in the $17,400 to $20,000 range, so a family of four would need to pay $69,600 to $80,000 per year in taxes (federal, state and local) just to cover what the government averages in spending per person. The often cited fact is that the US spends more per person than Portugal, Italy, Greece or Spain.Geo - thanks for the details here, but this is exactly my point - if you're not in the top few % of taxpayers, you are not paying your fair share according to lots of definitions of 'fair.' That said, I believe a progressive tax system is a fair *system*, but I don't believe that it means that everyone pays their fair share.

timeasterday

New Member

posted: Jan. 15, 2013 @ 7:53a

I don't think the additional tax will affect me too much. Every year I come in under my budget and this year should be no different, just a little less under. Heck, I just bought my first new car in 13 years and increased my 401k and Roth IRA contributions. So overall I'll be spending more and making a little less, but I planned for it.

clemente21

Senior Member

posted: Jan. 15, 2013 @ 8:04a

I just saw my first paycheck under the new rates. It's a little less, but then again I just bumped up my 401k contribution by a percent as well. I'm not pleased, but I'll survive.

brainpain

Blissful member

posted: Jan. 15, 2013 @ 8:45a

geo123 said: He didn't say that the "common man benefits over the rich from the government." He said that "Unless you're in the top 1%, you're not paying your fair share," by which I think he meant that most people (I don't think that it's quite as high as 99%, but it does seem to be in the 97%-98% range) receive more in federal benefits than they pay out in federal income taxes.

According to the numbers that I am seeing, the latest figures for federal pet capita spending are around $11,500/year for every man, woman and child, which translates into $46,000/year in federal spending for a family of four. Hence, I think that it is safe to say that the vast majority of the population pays substantially less than $46,000/year in federal income taxes for a family of four.

P.S.By the way, from what I can see, once you factor in spending from state and local governments, the per capita spending figure is somewhere in the $17,400 to $20,000 range, so a family of four would need to pay $69,600 to $80,000 per year in taxes (federal, state and local) just to cover what the government averages in spending per person. The often cited fact is that the US spends more per person than Portugal, Italy, Greece or Spain.

I'm not sure that this is a fair statement. Not all of us are a family of 4. I'm a family of 1, so no deductions for kids. I am not in the top 1% (I make under $100k, even with a bonus.) So my federal tax burden should be about $11,500/year. I pulled up my 2011 federal tax form, and I paid $12,306.

I am not in the top 1%, but it looks like I paid my "fair share". This was with maxing out a 401k, which decreased the amount of taxes that I paid, and a small mortgage.

Just another point of reference.

And, while I know the tax reduction was meant to be a short-term stimulus, it's still painful to have less spending money each month. I've been increasing my 401k contribution slowly over the last several years, and just maxed it out for the first time last year. I could reduce that 2% - but I don't want to take money away from my future retirement! So I'm going to have to look around and see what (else) I can do to save money. It's not dire, I've been saving, but I'd like to *keep* saving. And, I've been putting off bigger things, like house renovations (i.e. new windows, getting the bathroom fixed up) until things feel a little less stressful.

PrincipalMember

Senior Member - 1K

posted: Jan. 15, 2013 @ 9:35a

geo123 said: PrincipalMember said: Mortgage is not spending. Same can be true for car payments depending on the interest rate. I can pay over my mortgage multiple times over but I continue to have it at a ridiculous 3.25% while I am using the money to make 5% tax free returns from muni-bonds.I very much agree with the sentiment, but as far as your specific point goes, at this time you can't purchase an investment grade muni bond with a 5% coupon rate at par. You have to pay a premium for it, which means that your efffective yield is going to be in the 3's.

Agreed - can't pick the same bonds up now - I picket up mine 2-3 years ago. But as recently as sep last year, I picked up 3% tax free yield bonds for a retired relative. 3% tax free versus 3.25% tax deductible mortgage interest for somebody in high interest tax bracket is a good deal. I actually stopped buying those 5% bonds beyond a certain points since I started going to long term covered calls on high dividend paying stocks - shooting for 10%+ overall returns with low cap gains rates. And it is easily possible to dial down the risk a lot more and shoot 5% overall return. Again 5% return at long term cap gain rates while mortgage being fully deductible is overall good arbitrage.

All I am saying is that 3.25/3.5% deductible mortgage is a very low rate that one has to take advantage of it!

geo123

Happy Member

posted: Jan. 15, 2013 @ 10:44a

PrincipalMember said: Agreed - can't pick the same bonds up now - I picket up mine 2-3 years ago. But as recently as sep last year, I picked up 3% tax free yield bonds for a retired relative. 3% tax free versus 3.25% tax deductible mortgage interest for somebody in high interest tax bracket is a good deal.Assuming that it's not a private activity muni-bond and/or your relative isn't in the AMT territory (private activity muni-bond interest is still subject to the AMT even though it is not subject to the regular federal income tax), it is a good deal. This assumes, of course, that the relative has the ability and the desire to hold the bond until its maturity. If he has to sell it prior to maturity, once interest rates go up, he'll have to accept a discount and it won't be a deal any more.

By the way, you can get higher yields as well. Admiral shares of the Vanguard Long-Term Tax-Exempt Fund (VWLUX) have a current distribution yield of 3.72%. Admiral shares of the Vanguard High-Yield Tax-Exempt Fund (VWALX) are at 3.8%. You are, of course, then subject to the standard issues and caveats associated with bond funds, especially in this interest rate environment.

By the way, you can also get muni bond yields around 4% but would have to accept very long term maturities as a result (around 20 years) and, often, call options by the issuer.

All I am saying is that 3.25/3.5% deductible mortgage is a very low rate that one has to take advantage of it!I certainly agree!

Usorry

Senior Member - 1K

posted: Jan. 15, 2013 @ 11:44a

TravelerMSY said: My level of spending isn't closely correlated to my income, so it will make no difference at all.

Best answer

jedblanks

Member

posted: Jan. 15, 2013 @ 12:34p

Not only will it not impact my behavior, it will have no impact on me whatsoever since I never got the payroll tax cut in the first place. You see, not everyone pays into social security. People with private retirement plans don't pay social security.

My 2% temporary tax break went into stimulating the economy by inviting people out for meals (restaurant sales revenue & tips) and buying gifts more often for friends, family, and coworkers. The effect will be lower sales revenue for restaurants and stores, fewer people receiving gifts (or lesser priced gifts) resulting in less money available for payroll (and payroll taxes) and consequently (on a bigger scale than just me) fewer jobs and less Social Security income for the government.

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